Third parties rights against insurers – is default judgment sufficient? (Scotland Gas Networks plc v QBE UK Ltd)

05 Mar 2024

Insurance and Reinsurance analysis: This Scottish case concerned whether and to what extent an injured third party can rely on an insurance policy of an insured wrongdoer where that insured party’s liability was determined by decree or judgment in default at a time when the insured party was in liquidation.

In subsequent proceedings, where the wronged claimant sought to rely on the wrongdoer’s insurance, the defendant insurers to the action argued that the Third Parties (Rights against Insurers) Act 2010 (the “2010 Act”) required that there was a full merits determination as opposed to a default judgment before the provisions of the 2010 Act applied.

The Court rejected this argument finding: (i) there was nothing in the statutory language of the 2010 Act which imposed an additional gloss on judgment or decree that required the judgment or decree to be after a consideration of the full merits.   (ii) If the drafters intended this meaning, express words would have been used.  (iii) Further, the 2010 Act represented a development in the law and cases decided under the provision of the pre-2010 statute were of little relevance.

Scotland Gas Networks plc v QBE UK Ltd and others [2024] CSOH 15, 2024 Scot (D) 18/2

What are the practical implications of this case?

This will be of interest to insurers and insured and those who represent them.  The scope for insurers to argue that a wrong party cannot rely on a policy of insurance remains after this Judgment, but that scope has been significantly narrowed.

A judgment or decree in default rates equally with a full merits determination under section 1 of the 2010 Act.  Decisions under the 1930 Act are not relevant to this consideration.

Insurers will have an interest in ensuring that proceedings of their insured are fully defended at first instance.

What was the background?

The pursuer (Scottish term for claimant), Scotland Gas Networks plc (“SGN”), the statutory successor of the Scottish Gas Board, owns and operates an extensive network of gas mains and other gas transport media in Scotland.

The case concerned one of SGN’s gas pipelines which is a high-pressure transmission pipeline between Glenmavis and Letham.  One part of this pipeline ran adjacent to Cowdenhill Quarry which at the material time was operated by D Skene Plant Hire Limited (“Skene”).

After an aerial survey, SGN alleged that Skene had exceeded its licensed areas of operation and caused the supports for the pipeline to be undermined.  SGN claimed £3 million in damages for among other things re-routing the pipeline.  Skene went into liquidation in June 2017 and on 15 November 2017, SGN obtained decree (Judgment in default) in the sum claimed, being £3 million. SGN then sought to enforce this liability against Skene’s insurers who defended the claim.The key questions to be determined by the Court at the hearing were:

  • What is the legal effect of the decree by default in terms of section 1(4) of the Third Parties (Rights against Insurers) Act 2010?
  • Was the pursuer’s claim against Skene excluded by the terms of the relevant policy of insurance?

The first question engaging a matter of principle is of potentially wide application.

What did the court decide?

The defendants attempted to argue that section 1(4) of the Third Parties (Rights against Insurers) Act 2010 did not extend to decrees or judgments in default and that properly interpreted a judgment or decree within required a determination of the merits.  The defendants relied upon the repeated use of the term “establish” in the statutory provision as evidence that the drafters intended that the merit be considered and determined.

The defendants accepted there was no case squarely on the point decided after the coming into force of the 2010 Act.  Rather the defendants relied upon case law decided under the previous statutory provision being section 1 of the Third Parties (Rights against Insurers) Act 1930 (the “1930 Act”).

The Judge found on the development in the law that the passing of the 2010 Act represented:

I consider that it is important to note that section 1 of the 2010 Act clearly represents an innovation up-on the pre-existing position under the 1930 Act. The background to the 2010 Act was a recognition of the need to reform the pre-existing law (see Explanatory Notes at paragraphs 1 to 6).”

The Judge disposed of the argument relying on the word “establish” nothing that it was used 25 times in the fuller statutory provision, he found it unlikely that the drafter intended a special meaning in relation to judgment or decree without words making that special meaning express.

The Judge also noted that it remained open to an insurer to argue that the loss was not within the scope of the insurance or in deed to step into the insured shoes and defend the underlying liability at first instance (on the current facts, the insurer had been invited to defend and had stood back).

The Court went onto decide that the liability was arguably within the scope of the insurance and that this issue would remain for a trial on the basis of the parties’ current pleadings.

Case details

  • Court: Court of Session (Outer House)
  • Judge: Lord Richardson
  • Date of judgment: 16 February 2024

Article by Lauren Godfrey – first published by LexisNexis


Lauren Godfrey

Call: 2007


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